US Dollar pushes higher as robust data underpins hawkish Fed outlook

• Ongoing strength in the US labor market fuels expectations of a more restrictive Federal Reserve policy path in 2025.
• Investors rotate into the Greenback as elevated Treasury yields attract global capital, driving the US Dollar Index to fresh cycle peaks.
• Markets anticipate the Fed to maintain its 4.25%-4.50% rate range this month, postponing further cuts as inflation concerns persist.

The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, sees gains for a fifth straight session on Monday against nearly every major G20 peer. Markets are rebalancing for a more restrictive Federal Reserve (Fed) policy in 2025 after the most recent US employment report.

The DXY briefly touched 110.00 and seeks consolidation at these elevated levels as the Greenback retains its bullish footing given the solid Nonfarm Payrolls (NFP) data last Friday and the Fed's cautious approach to easing viewed in last week's Meeting Minutes.

Daily digest market movers: US Dollar sees gains on a solid NFP report

• Strong US data and hawkish Fed officials continue pushing the US Dollar to new cycle highs with robust December NFP figures underscoring labor market resilience.
• December Nonfarm Payrolls grew by 256,000, eclipsing the 160,000 consensus, while the Unemployment Rate ticked down to 4.1%. Wage inflation decelerated slightly to 3.9% YoY.
• New York Fed's Nowcast points to Q4 growth at 2.4% SAAR, up from 1.9% last week, while Q1 estimates rose to 2.7% from 2.2%. The Atlanta Fed GDPNow model tracks Q4 near 2.7%.
• Fed set to hold rates steady this month as policymakers note diminished urgency for additional cuts, citing continued labor market and growth momentum through 2025.
• Consumer Price Index from December is due this week, and its outcome will dictate the market's price dynamics as well as Fed rate bets.

DXY technical outlook: Index approaches 110.00, flashing overbought signals

The US Dollar Index has surged to its highest level since November 2022, briefly testing the 110.00 threshold. Momentum indicators are nearing overbought territory, suggesting a possible near-term pause or shallow pullback. Still, strong labor figures and a hawkish Fed bias reinforce the US Dollar's bullish trajectory. Should profit-taking intensify, support may emerge around the 108.50-109.00 zone, providing a buffer for the ongoing uptrend.